Eight Years Wrong

If your economic models led you to make the same bad predictions for six straight years, perhaps you’d pause to consider their validity before plunging ahead into the same mistake. But not if your Charles Plosser. The conservative head of the Philly Fed has made a fine folly of calling for inflation for six years now, repeating his time-worn shtick for the benefit of a roomful of reporters again this past Wednesday.

Plosser’s ineptitude makes for a long, sorry public record. In March 2008, during the worst US economy in 70 years, Plosser somehow opposed Fed rate cuts, expressing belief that a recovery was imminent. Fortunately the Fed blew him off and cut rates anyway – and the recession persisted for another 15 months. Plosser was just warming up. In July 2009, he said he expected the Fed would soon have to raise rates to head off inflation. That year the US posted its lowest inflation rate in 54 years, with prices actually deflating 0.4%! In May 2010, Plosser acknowledged that inflation had been unusually low (duh), but said he was still concerned about inflation risks beyond the short term. The Fed stayed the course and inflation barely budged. In March 2011, he claimed that Fed policies were raising the threat of inflation. He spent 2012 and 2013 beating the same drum, and this past July said on Bloomberg TV that the Fed risked “losing control of inflation.” As 2011, 2012 and 2013 turned out, Plosser was wrong, wrong and wrong.

Predicting inflation isnt a mere academic pursuit. When the Fed acts to head off inflation, Americans pay the price with higher unemployment. Constant, spurious calls for inflation can be extremely detrimental to an economy, putting millions out of work needlessly. One need only look at the European Central Bank, which for years has been filled with hacks like Plosser, whose conservative mismanagement of monetary policy has returned the Eurozone to recession.

It isnt merely the case that Plosser’s imagined threat of inflation never materialized. During the period 2009-14, the US experienced its lowest inflation of the past half-century! For all of Plosser’s harping, inflation has at times gone so low as to pose the graver threat of deflation. Inflation for 2013 came in at a low 1.5%; 2014 is running at a similar level; projections by better-skilled economists call for the same in 2015.

Plosser’s crowning non-achievement came in July 2013, when the Wall Street Journal ranked him dead last among his colleagues at the Fed, for his utter inability to predict the rise or fall of interest rates, inflation or unemployment. The joke about a broken clock being right twice a day doesnt quite capture the ineptitude of an economist whose models arent even borne out once per decade. His dismal record notwithstanding, Plosser remains conservatives’ go-to guy whenever they need to cite a Fed official to justify their latest unfounded criticism of Fed policy.

As a conservative, Plosser must be terribly frustrated, given that the Fed has not once raised rates during his tenure. But fortunately the end is in sight. No, the Fed isnt going to accede to conservative hysteria and raise rates. After stinking it up for eight years as the president of the Federal Reserve Bank of Philadelphia, Plosser, thankfully, is retiring in March. And the Fed can get on with the business of keeping rates low, while US wages and employment continue to recover.


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